UK government extends FLS, pins hopes on alternative financiers

Last summer, the Bank of England launched the Funding for Lending Scheme (FLS), which offered financial institutions cheap credit for providing funding to businesses and households.

While mortgage lending has reported some gains from the FLS, small and medium-sized enterprises (SMEs) appear no better off now than when the initiative began. But that didn't stop the Bank of England from extending the FLS program.

"Expectations should be modest about what it will do for growth in the short term," said Brian Hilliard, United Kingdom economist at Societe Generale, according to Reuters.

Lending in the United Kingdom declined by £4.8 billion between December and February, The Telegraph reported, with SMEs among the heaviest sufferers.

Fortunately for these companies, the BoE is being more realistic about the chances of solely bank lending turning the sector around. In the wake of the Great Recession, many financial institutions view SMEs as an unnecessary risk to take when it comes to pushing through loans, which is why supply for smaller companies has remained extremely low.

As a result, the reformed FLS initiative offers banks cheap credit as a reward for lending to alternative financiers.

"The supposed upturn in traditional lending isn't meeting this need. And unless someone is willing to put their money where their mouth is, that won't change," Duncan Kreeger, director of West One Loans, recently told Property Wire. "That's why alternative finance and peer-to-peer lending models are proving so popular."

Alternative finances rising quickly
According to Property Wire, British landlords are rapidly gravitating toward alternative short term lenders. SMEs have taken a while to catch on to the benefits of alternative financing, but there's little question small business leaders are starting to gravitate toward them.

The fact that alternative lenders are willing to supply businesses isn't the only advantage these firms offer. Some others include:

- The speed with which they are available. As Kreeger told Property Wire, "deals can be done in days rather than months," which is how long is takes for many bank loan requests to go through.

- Different scoring measures that open up lending to a wider range of companies. Instead of only using traditional credit scores to determine whether a party is a worthy risk, some alternative financiers employ Payment Reporting Builds Credit scoring. This method looks at other factors like past utilities payments to determine a company's eligibility.

- The wider range in amounts. Oftentimes SMEs are in need of smaller handouts, and many alternative lenders are willing to accommodate them.